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In the second quarter of 2012, The Boeing Company (BA - Analyst Report), registering strong core performance across its businesses, posted strong numbers. In the reported quarter, the company posted earnings per share (EPS) of $1.27 beating both the Zacks Consensus Estimate of $1.11 and the year-ago EPS of $1.25.
The company witnessed 27% higher commercial airplane deliveries while its defense business, showing resilience, clocked higher revenues and strong margins in a difficult market environment.
On the revenue front, the company witnessed its quarterly revenue rise 20.9% year over year to $20.0 billion, above the Zacks Consensus Estimate of $19.4 billion.
Boeing’s Commercial Airplane segment saw a 27% rise in deliveries to 150 units in the reported quarter. As a result, Commercial Airplanes revenue increased by 34% to $11.8 billion on higher delivery volume.
In the reported quarter, the company delivered 109 units of 737 series and 22 units of 777 series airplanes versus deliveries of 94 and 19, respectively in the year-ago period. The company also delivered 6 units of 767 (5 in the year-ago period), 6 units of 747 and 6 units of 787. In the year-ago period, no 747 and 787 airplanes were delivered.
Operating margin fell 20 basis points to 10.2%, reflecting higher period costs and the dilutive impact of 787 and 747-8 deliveries. This was partially offset by the higher deliveries and lower research & development (R&D) expenditure.
Commercial Airplanes booked 28 net orders during the reported quarter. Backlog at the end of the reported period remains strong with approximately 4,000 airplanes valued at a record $302 billion.
Boeing Defense, Space & Security
Boeing Defense, Space & Security segment witnessed a 7% rise in its quarterly revenue to $8.2 billion. Among its sub-segments Boeing Military Aircraft (BMA) and Global Services & Support (GS&S) witnessed a top-line climb of 13% and 11%, respectively.
The upside for the two sub-segments was primarily attributable to higher delivery volume and higher volume in integrated logistics, respectively. Only its Network & Space Systems (N&SS) sub-segment recorded a 9% fall in revenues. N&SS revenue decreased owing to lower volume on Brigade Combat Team Modernization program.
Quarterly operating margin fell by 130 basis points to 9.1%. The downside came from both the BMA and N&SS sub-segments, which were affected owing to an inventory adjustment on A160 Hummingbird unmanned aerial vehicle helicopter program and lower earnings at United Launch Alliance, respectively.
United Launch Alliance is a joint venture of Lockheed Martin Corporation (LMT - Analyst Report) and Boeing. However, this was partially offset by higher margin at the GS&S sub-segment owing to improved performance in maintenance, modification and upgrades.
Backlog at Defense, Space & Security segment remained at $72 billion, keeping the backlog to more than two times the unit's projected 2012 revenue.
Boeing Capital Corporation (BCC)
Boeing Capital Corporation reported quarterly revenues of $99 million compared with $147 million in the year-ago quarter. The segment registered earnings of $31 million compared with earnings of $62 million in the year-ago period. At quarter-end, BCC's portfolio balance declined to $4.1 billion, down from $4.2 billion at the beginning of the reported quarter on portfolio run-off and asset sales.
Boeing ended the quarter with cash and cash equivalents of $6.3 billion and short-term investments of $4.0 billion. At the start of the reported quarter, the company had $6.7 billion in cash and cash equivalents and $3.8 billion of short-term investments.
The company generated $1.7 billion of cash from operating activities in the first half of 2012, compared with $643 million generated in the year-ago period. Long-term debt decreased to $8.7 billion at the end of the reported period from $10.0 billion at the end of 2011.
Boeing enjoys a unique position as the largest aircraft manufacturer in the world in terms of revenues, orders and deliveries and is one of the largest aerospace and defense contractors in the world. Besides, its revenues are spread across more than 90 countries around the globe.
Boeing raised its fiscal 2012 earnings per share guidance to a range of $4.40–$4.60 versus its earlier guidance range of $4.15–$4.35. The company also raised its revenue guidance for 2012 to the range of $79.5 billion – $81.5 billion versus the earlier range of $78.0 billion–$80.0 billion.
Commercial Airplanes' 2012 deliveries are expected to be between 585 and 600 airplanes, which are already sold out. This includes an expected 70 to 85 787 and 747-8 deliveries. Commercial Airplanes' 2012 revenue is expected to be between $47.5 billion and $49.5 billion with operating margin hovering around 9.0%.
In the defense space, the company expects defense revenue for 2012 to be between $31.5 billion and $32.0 billion versus its earlier range of $30.0 billion and $30.5 billion with operating margin greater than 9%.
Boeing Capital Corporation expects that its aircraft finance portfolio will continue to decline in 2012.
Boeing's 2012 R&D expenditure forecast is between $3.3 billion and $3.5 billion. Capital expenditures for 2012 are expected to be approximately $2.0 billion.
Boeing currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock.